What is PMI? Private Mortgage Insurance is insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. PMI is attached to conventional loans.
What is MIP? Mortgage insurance Premiums are fees paid by the borrower to FHA or a private insurer for mortgage insurance. It is attached to government loans such as FHA or VA.
Does mortgage insurance do anything for me? Not really. It is really only there to protect lenders. It is a guarantee for the lender that if you, the borrower, cannot pay the loan, that they will not be out the entire amount of the loan.
Payments can be $55/month for a $100,000 loan or up to $1500/year for a $200,000 loan.
How do I avoid paying mortgage insurance?
On a FHA loan, you can never avoid paying mortgage insurance. On a conventional loan, you don't have to pay mortgage insurance if you have a 20% downpayment. This would free up a lot of money for you to use however you want to. You can pre-pay on your loan so that you decrease your interest payments, you could invest the extra money, or you could use it toward your home so that you increase your equity.
I know it is hard to find 20% of your home to put down. There are other options for you. It is in your best interest to figure out what your goals are and talk to your lender to see if they can find an option that fits your needs.
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